August NFP report – a preview

Today is the last trading day of the month. It means that volatility in financial markets will be a bit higher than usual.

It also means that tomorrow is the first Friday of the new month. Thus, August’s Non-Farm Payrolls (NFP) report will be released.

It is a critical piece of economic data. Market participants are on the lookout for clues about what the Federal Reserve might do next with the interest rates.

Following the recent Jackson Hole Fed symposium, markets saw a 50-50 chance of a final rate hike this year. The big question is – when will it be delivered, and, more importantly, are there any reasons for the Fed not to hike anymore?

Is the terminal rate reached?

The US economy grows at a slower pace than believed

The Preliminary GDP data was released yesterday and reflected that the US economy grew slower than initially expected. The GDP was revised lower to 2.1% from 2.4%.

Why revised?

Because this was the second GDP release out of three releases. Rarely did the second and third reports differ from the Advance GDP release, but the data differed this time. It further complicates the Fed’s picture as the final rate hike of the cycle might not come after all.

The bias is that the August NFP report will miss expectations

Market participants expect the US economy to add 169k new jobs in August. But the bias for tomorrow’s report is that it will miss expectations.

Both the JOLTS and the private employment reports showed a softening labor market. Hence, if the NFP confirms such softening, then the Fed will have further reasons to end the tightening cycle.

As usual, it is not about the actual number only. Other details in the report matter, such as the unemployment rate, revisions to past data, and even how wages evolved.